US Dollar Starts 'Hot Engine', Fed's Interest Rate Setting To Be A Top Consideration!

 The US dollar traded higher on Monday as investors preferred to maintain holdings on the US dollar yet at the same time they tended to assume that that the Fed would tighten interest rates. On the other hand, the euro eased from a two -month high reached on Friday.

The unexpected reduction in major lending rates in China has been a major topic of debate and indirectly influenced the behavior of investors who assume that other major central banks will raise interest rates. The measures implemented by China have affected the strengthening of the yuan.

The US dollar index, which traded sharply last week, traded 0.1% stronger at 95.323. According to Goldman Sachs, “With 3.7 Fed rate hikes priced in 2022 and 2.3 for 2023, market players seem to be concluding that the risks to policy pricing are now more balanced”.

The Fed is expected to meet on January 25-26 and is predicted not to take any drastic action for now.

Speculators are betting that the US dollar will continue to strengthen even amid a hawkish tone from the Fed over the past few months.

On the other hand, the Euro was down 0.2% against the US dollar at $ 1.1396, after rising on Friday to a two -month high.

With no major economic data for the eurozone on this week’s calendar, investors will focus on speeches from President Christine Lagarde, other ECB members and on the minutes of the December ECB policy meeting released on Thursday.

European Central Bank President Christine Lagarde said on Friday the central bank was ready to take any steps necessary to bring inflation down to the 2%target. Inflation was reported to have risen to 5% in the last month, the highest ever recorded.

Still, ECB board member Isabel Schnabel said in a statement released on Friday that raising interest rates in the eurozone would not push energy prices down.

In addition, the Central Bank of Japan is among those actively debating to make policy changes. Sterling was down 0.2% against the US dollar at $ 1.3651, after strengthening last week to its highest level since late October.

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